Contraventions of s 12DI(3) of the ASIC Act
218 Let me begin first with s 12DI(3). Westpac, Securitor, Magnitude, AAML, ACML, BTFM and BTPS admit that they contravened or at least were knowingly involved in contraventions of s 12DI(3).
219 Let me first focus on the advice licensees being Westpac, Securitor and Magnitude.
220 The advice licensees admit that they each accepted payments from affected members for the purposes of s 12DI(3)(a). These are customers who received financial advice services and whose accounts were charged advice fees even after notification of their death. The advice licensees further admit that the payments were for financial services, being financial product advice. Accordingly, s 12DI(3)(a) is satisfied for each contravention.
221 Each advice licensee admits that at the time of accepting a relevant payment there were reasonable grounds for believing that it would not be able to supply the financial services, being, of course, the financial product advice, to the affected member within a reasonable time or at all. At the time of acceptance of a payment, the advice licensee knew that the affected member was deceased. Upon the death of an affected member, the relevant advice licensee obviously could no longer provide the personal advice services to the affected member. The ongoing personal advice arrangement, predictably, terminated upon death.
222 In short, the advice licensees admit that they accepted the relevant payments, the payments were accepted in trade or commerce, the payments were for financial services and, at the time of accepting payments, there were reasonable grounds for believing that they would not be able to supply the financial services within the period specified or, if not specified, within a reasonable time.
223 Accordingly, by accepting an advice fee from the affected member's account (as deducted and remitted by either a SIPO entity or a non-group SIPO entity), the advice licensees contravened s 12DI(3).
224 In the penalty period, which is the shorter period, up to 1 July 2019, Westpac contravened s 12DI(3) on the 4,324 occasions that Westpac accepted payment of an advice fee after being notified of the customer's death. These fees amounted to $812,734.74, affecting the estates of 575 customers.
225 In the penalty period up to 1 March 2019, Securitor contravened s 12DI(3) on the 3,272 occasions that Securitor accepted payment of an advice fee after being notified of the customer's death. These fees amounted to $388,018.56, which affected the estates of 604 customers.
226 In the penalty period up to 9 October 2019, Magnitude contravened s 12DI(3) on the 1,214 occasions that Magnitude accepted payment of an advice fee after being notified of the customer's death. These fees amounted to $225,457.46, affecting the estates of some 237 customers.
227 Let me then turn to the SIPO entities.
228 Each of AAML, ACML, BTFM and BTPS admit that they were knowingly concerned in contraventions of s 12DI(3).
229 The SIPO entities, excluding BTFM No. 2, admit that up to and including 10 September 2018, they knew that the advice licensees accepted advice fees as payment for financial services after being notified of the customer's death.
230 The SIPO entities, excluding BTFM No. 2, further admit that up to and including 10 September 2018, they knew that after receiving notification of death, there were reasonable grounds for believing that the advice licensees would not be able to supply the financial services within a reasonable time or at all. In particular, when remitting the fees to the advice licensees, the SIPO entities knew that the fees were for the provision of ongoing financial advice services to the customer, but that the customer was deceased.
231 So, AAML, ACML, BTFM and BTPS admit that they knew that the principal contravener had accepted payments, they knew that the payments were for financial services and they knew, at the time of remitting the fees which the principal contravener accepted, that there were reasonable grounds for believing that the principal contravener would not be able to supply the financial services within the period specified or within a reasonable time if no period was specified.
232 Clearly, by reason of their knowledge and their remittance of the fees, they were, in my view, and as the parties quite properly put to me, intentional participants in the principal contravener's contravention and were therefore directly or indirectly knowingly concerned in the principal contravener's contravention.
233 The SIPO entities, excluding BTFM No. 2, accordingly admit that by remitting an advice fee to an advice licensee, they were, as to fees remitted during the penalty period, directly or indirectly knowingly concerned in the advice licensee's contraventions of s 12DI(3).
234 So, in the penalty period up to 10 September 2018, AAML was knowingly concerned in a contravention of s 12DI(3) on the 5 occasions that AAML remitted an advice fee to Westpac, Securitor or Magnitude after being notified of the customer's death. These fees amounted to $487.23, affecting the estates of 2 customers.
235 In the penalty period up to 10 September 2018, ACML was knowingly concerned in a contravention of s 12DI(3) on the 781 occasions that ACML remitted an advice fee to Westpac, Securitor or Magnitude after being notified of the customer's death. These fees amounted to $129,838.02, affecting the estates of 106 customers.
236 In the penalty period up to 10 September 2018, BTFM was knowingly concerned in a contravention of s 12DI(3) on the 3,948 occasions that BTFM remitted an advice fee to Westpac, Securitor or Magnitude after being notified of the customer's death. These fees amounted to $526,716.42, affecting the estates of 935 customers.
237 In the penalty period up to 10 September 2018, BTPS was knowingly concerned in a contravention of s 12DI(3) on the 717 occasions that BTPS remitted an advice fee to Westpac, Securitor or Magnitude after being notified of the customer's death. These fees amounted to $212,307.65, affecting the estates of 166 customers.
238 Let me turn now to the contraventions of s 12CB(1) of the ASIC Act.
239 Westpac, Securitor and Magnitude also admit that they contravened s 12CB(1).
240 Each of them admit that, having regard to their knowledge that advice fees ought to cease being charged upon receiving a notification that a customer was deceased and that the estates of affected members ought to be refunded, they engaged in unconscionable conduct, in connection with the supply of financial services, in contravention of s 12CB(1) by charging advice fees during the penalty period up to 12 November 2018 for Westpac and up to 19 November 2018 for the other two, Securitor and Magnitude, to affected member accounts after being notified of the customer's death, for financial advice that could not be and was not provided to the customer, and by retaining those fees.
241 From at least April 2013, and most unfortunately, the advice licensees well knew, including at a senior management level, that upon receiving notification that a customer was deceased, advice fees ought to no longer be charged yet they took years to do anything about that. They also knew that the estates of affected members ought to have been refunded any advice fees charged after death. So, knowledge was well known of that scenario as at 2013, and there seems to then have been a litany of process-type issues and procrastination before the matter was dealt with years later. I will just go through some highlights of the chronology, just to demonstrate some of those points.
242 Now the advice licensees did give consideration, including at senior management level, to steps to be taken to address the charging of advice fees to deceased customers, but nevertheless the impugned conduct continued.
243 In early 2013, apparently, a Securitor authorised representative raised the issue of advice fees being charged to deceased clients, commendably if I might say so. This prompted a series of internal communications amongst employees of the respondents about the issue and the provision of legal advice. One of the internal email communications in February 2013 referred to the need for processes to be amended so that adviser fees ceased being charged upon notification of death. There was then a telephone conference in April 2013 between employees of the respondents during which they had a broad discussion about the issue of advice fees being charged to deceased customer accounts, including the business risks flowing from ceasing to charge the fees and from continuing to charge the fees. Throughout April 2013, those who attended the telephone conference engaged in further communications as to the review of platform processes with a view to continuing to charge advice fees upon the accounts of deceased clients.
244 From April 2013, the advice licensees also considered the issue of transacting upon the accounts of deceased clients in the context of the FOFA reforms. The advice licensees identified that the fees for deceased clients ought to be switched off. From in or around mid-2013, some controls, capable of addressing the deceased clients issue, were introduced at the St George financial planning business, a part of the BT Financial Advisory business unit within the Westpac group. But no such controls were otherwise introduced by the advice licensees.
245 In December 2013, a draft business process document was issued as part of the implementation of the FOFA reforms. The document proposed functional requirements that would have created exception reports as to deceased clients. The advice licensees did not introduce any of these functional changes, surprisingly.
246 From 2013 through to January 2018 there were 23 occasions on which the issue of fees being charged to deceased customers (relating to advice clients) was raised by advisers or support staff as part of the "business as usual" administration relating to advice clients. Typically, and apparently, the questions raised related to whether and how advice fees should cease to be charged to deceased customers. The adviser payments services team generally responded to the effect that any ongoing fees charged to a deceased person must cease. But despite this very clear position, the advice licensees continued to accept such fees. They failed to address the issue systematically and neither did they introduce a system for the provision of any refunds to affected members.
247 In June and July 2013, members of the advice licensees' management and staff considered rules and processes as to the continuation of advice fees in the context of deceased estates. A business analyst, FOFA, in the Westpac group was advised that ongoing arrangements and fees must cease to be charged upon the death of a customer. He passed on that advice to senior managers at the Westpac group and also a business unit known as the BT Group licensees. As a result, the advice licensees considered updating the ongoing advice policy to provide that where an ongoing advice customer died, the adviser would be directed to cease the ongoing advice arrangement and terminate any ongoing advice fees. But notwithstanding all of this, the advice licensees made no amendments to the ongoing advice policy. Advice fees continued to be received from the accounts of deceased customers.
248 Let me jump forward a few years from 2013 and let me go to May 2017.
249 In May 2017, the advice licensees again considered the issue of charging fees to the accounts of deceased customers. What has been described as the BT Financial Advice Compliance Risk Council raised the question of whether there was a policy as to what to do upon the death of a customer, in respect of an ongoing advice service. The council made this a policy action item. In mid-2017, the issue was referred to a BTFG policy manager, BT Advice Compliance Policy, whose role included providing support in developing and updating BTFA policies, that is, BT Financial Advice policies. But despite the referral leading to no formal finding or report, the policy action item was closed later in the year.
250 In late 2017, the advice licensees considered the issue again. On 5 December 2017 a business process manager, Advice Service Delivery BT Customer Operations, Westpac group, sent an email querying the policy applicable to ongoing advice in relation to deceased estates. A BTFG policy manager, BT Advice Compliance Policy, responded to that email query. The response referred to an understanding that the agreement with the customer to provide ongoing advice ceases upon their death.
251 Over January 2018, the advice licensees had reference to legal advice on the issue from 2013, and sought further legal advice. In February 2018, the advice licensees were involved with an informal BT Financial Advice working group directed to approaches to the management of deceased estates, including the cancellation of ongoing advice fees upon notification of death.
252 At each stage that I have outlined through until the financial services royal commission, the advice licensees continued to accept advice fees from deceased customers' accounts, as deducted and remitted by the SIPO entities and the non-group SIPOs. The advice licensees continued to retain those fees despite knowing that they ought to be refunded.
253 This of course was unacceptable behaviour.
254 And notwithstanding their knowledge, during the relevant period until in or around September 2018, the advice licensees and the other respondents had neither a system of monitoring, nor a set of policies directed towards ensuring the obvious which was:
(a) that advice fees were not to be deducted from accounts following notification of the death of an accountholder;
(b) that there should have been timely notification of a client's death by advisers to appropriate persons within the respondents; and
(c) the return to affected accounts of advice fees deducted from an account following the death of an accountholder.
255 Prior to the introduction of specific policies in late 2018, any steps taken following notification of death were ad hoc.
256 It was not until after the royal commission that the advice licensees, along with the other respondents, introduced specific policies to address the issue of the steps to be taken upon receiving notification of the death of an accountholder.
257 Now of course ongoing advice arrangements terminated upon the death of an affected member. And inevitably if I might say so, the advice licensees had to accept that it was unconscionable, having been notified of an affected member's death, to then continue to receive advice fees in respect of the affected member's account when they knew from at least April 2013 that such fees ought not to have been charged. Clearly, it was incumbent upon the advice licensees in those circumstances to ensure that advice fees were no longer charged, or if they had been charged, that they were refunded promptly. This was especially so when the death of the affected member meant obviously that there was, to understate it, an asymmetry of power in relation to the charging of the advice fees.
258 Notwithstanding their knowledge and repeated consideration of the issue, the advice licensees failed to take steps which prevented the receipt of advice fees from the accounts of deceased customers. They also retained the fees and the payment of refunds began only after the remediation program was implemented.
259 The conduct of Westpac, Securitor and Magnitude was unconscionable, and even that is a fairly lightly touched description in the circumstances.
260 Let me say something about the contraventions of s 962P of the Corporations Act.
261 Westpac's admitted contraventions of s 962P concern certain members who received financial advice services from Westpac, and whose accounts were charged advice fees after their death.
262 In respect of each such affected member, there was until death an ongoing fee arrangement within the meaning of s 962A between such affected member and Westpac. The advice services for which such affected member accounts were charged were, of course, a financial service or financial services within the meaning of s 766A of the Corporations Act. The advice fees were ongoing fees within the meaning of s 962B.
263 In respect of each ongoing fee arrangement for which Westpac was the relevant advice licensee, Westpac was the fee recipient within the meaning of s 962C.
264 Westpac further accepts that s 962D was met as to the 962P affected members.
265 Moreover, Westpac admits that upon the death of such an affected member, their ongoing fee arrangement terminated within the meaning of s 962P.
266 So, it follows that by continuing to charge such an affected member advice fees after their death, Westpac contravened s 962P.
267 During the penalty period up to 1 July 2019, Westpac charged advice fees to such affected members after being notified of their death on 1,212 occasions in contravention of s 962P. These fees amounted to $301,928.35, affecting the estates of 179 customers.
268 Let me deal now with the contraventions of s 912A of the Corporations Act.
269 Westpac, Securitor, Magnitude, AAML, ACML, BTFM and BTPS admit that they contravened s 912A(1)(c) of the Corporations Act, by reason of their contraventions as I have outlined earlier.
270 Further, all of the respondents admit that they contravened s 912A(1)(a) during the penalty period up to various dates in late 2018. I note here, of course, that s 912A(1)(a) was not a civil penalty provision within this period, that is, during the penalty period, but up to various dates in late 2018. It became a pecuniary penalty provision in March 2019.
271 I will make relevant declarations based upon the contraventions that I have identified. These contraventions obviously concern deficient systems and the respondents each admit to having contravened s 912A(1)(a) by failing to have systems, practices and policies which were capable of preventing the charging of advice fees to affected member accounts after notification of the customer's death and, as to the advice licensees, failing to have systems, practices and policies in place providing for the refund of advice fees back to the date of the customer's death.
272 By the deficiencies in their systems, and quite unacceptably, the respondents, who of course are financial services licensees by definition, failed to do all things necessary to ensure that the financial services covered by their licenses were provided efficiently, honestly and fairly.
273 Now the parties have sought declarations on all contravening conduct, not just the contraventions dealing with s 912A, and I have no difficulty in making the declarations sought. I do not need to linger on the question of jurisdiction or discretion and the appropriateness of making declarations in the present matter, particularly of course given their general deterrence effect.
274 Let me then turn more directly to the question of pecuniary penalties.
275 Undoubtedly in setting a pecuniary penalty, of course, one must take into account and be guided by the framework of and the content of the applicable statutory provisions.
276 In this context, let me say something about s 12GBA of the ASIC Act up to 12 March 2019.
277 That provision, in particular s 12GBA(1), as relevantly in force up until 12 March 2019, provides that the Court may order a person who has contravened ss 12DI(3) or 12CB(1) to pay a pecuniary penalty as is determined to be appropriate.
278 Section 12GBA(2) as in force up until that time requires the Court, in determining the appropriate penalty, to have regard to all relevant matters including:
(a) the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission;
(b) the circumstances in which the act or omission took place; and
(c) whether the person has previously been found in proceedings under Subdivision G to have engaged in similar conduct.
279 I should say that the parties have provided me with extensive submissions on some of the relevant factors to consider in this context. I do not propose to go through them all, but I should say here that I have of course taken each such matter into account.
280 I also note that s 12GBA(3) as relevantly in force up until 12 March 2019 is to the effect that the maximum penalty for a body corporate for each contravention of ss 12DI(3) and 12CB(1) is 10,000 penalty units.
281 I do not need to linger on the arithmetic here, other than to say that in the circumstances of the present case, the maximum penalty for each contravention of ss 12DI(3) and 12CB(1) during the penalty period up to 12 March 2019 ranged between $1.8 million to $2.1 million per contravention.
282 Further, s 12GBC(2) as in force until 12 March 2019 is dealing with what the parties seek, which is civil penalties only as to contraventions of s 12DI(3) and 12CB(1) as occurring within six years of commencement of the present proceeding, that is, within the penalty period.
283 Let me now say something about s 12GBA as it appeared in its form from 13 March 2019. Relevantly, s 12DI(3) is a civil penalty provision. So, where the Court has made a declaration of contravention under s 12GBA, the Court can order a person to pay to the Commonwealth a pecuniary penalty that is considered to be appropriate.
284 Section 12GBB(5) as in force since 13 March 2019 provides a list of the factors to be taken into account when determining penalty. These factors are similar to those set out in the prior provision. I will say again that I have of course taken such matters in the parties' submissions into account to the extent that they address those specific factors.
285 Further, s 12GBCA(2), as in force from 13 March 2019, is to the effect that the maximum penalty for a body corporate for each contravention of s 12DI(3) is the greatest of:
(a) 50,000 penalty units, which transposes to $10.5 million per contravention;
(b) if the Court can determine the benefit derived and the detriment avoided because of the contravention, that amount multiplied by 3; and
(c) either:
(i) 10% of annual turnover for the prior 12 months of the relevant body corporate; or
(ii) if that amount is greater than an amount equal to 2.5 million penalty units, then 2.5 million penalty units, which comes out at $525 million.
286 Further as to s 12GBB(2) as in force from 13 March 2019, ASIC had to apply for the pecuniary penalty order within 6 years of the contravention.
287 Let me now say something about s 1317G of the Corporations Act up until 12 March 2019.
288 Section 1317G(1E)(b)(iv) and (1G)(b) as in force up until 12 March 2019 provides that the maximum penalty for a contravention of s 962P by a body corporate is $250,000. The relevant statutory provision provides no listing of factors to be taken into account.
289 Further to s 1317K, the parties seek civil penalties only as to Westpac's contraventions of s 962P as occurring within the penalty period.
290 And as to s 1317G from 13 March 2019 the following may be noted.
291 Section 1317G(4), as in force from 13 March 2019, is relevantly to the effect that the maximum penalty for a contravention of s 962P by a body corporate is the greatest of 50,000 penalty units, again, equivalent to $10.5 million per contravention, the benefit derived multiplied by 3, if that amount can be determined, and what I indicated previously in terms of either the 10% of annual turnover or the 2.5 million penalty units (if the latter is less).
292 The statute lists factors to be taken into account when considering penalty. Those factors are identical to those set out in the ASIC Act, and again I have taken those factors into account.